Smurfit Kappa profits fall but rising packaging prices lifts outlook

Irish packaging group Smurfit Kappa took a dent to profits in the first quarter but also confidence from solid demand leading to improved volumes, which set the scene for it to increase box prices over the course of the year.

Revenue in the first three months of the year of €2.13bn was up 6%, or 3.7% on a days adjusted basis, on the same quarter last year and 3% on the fourth.

Corrugated volumes were "generally good across most markets", said chief executive Tony Smurfit, with the group volume growth of 3%.

Earnings before interest, tax, depreciation and amortisation of €278m were down 1% year-on-year and down 13% on the fourth quarter, with the EBITDA margin of 13% down from 14% and 15.5% in those same periods respectively.

Profit before tax dropped 15% on last year to €109m, down 30% on the fourth quarter, with earnings per share falling 19% and 26% respectively to 31.5 euro cents. Excluding exceptional items earnings came in at 32.2 cents.

"These results, against a backdrop of significant recovered fibre cost inflation of approximately €30m year-on-year, reflect the continued strength of our business. We expect improved margins as paper price increases translate into higher box prices," Smurfit said.

He added: "With solid demand, tight inventories and higher input costs, containerboard prices across all grades have been, and continue to be increased. These increases have provided the backdrop for necessary box price increases which will be progressively implemented during 2017."

In European recycled containerboard, the group increased prices by €60 per tonne in the quarter, with additional increases announced for April as overall demand for recycled containerboard was said to remain robust, with industry inventories keeping tight throughout the quarter.

Cash flow more than doubled to €16m thanks to lower outflows to working capital, while net debt shrank 3% to €2.9bn and its ratio to EBITDA improved to 2.4 times from 2.5 a year ago in what is traditionally a softer quarter.

Summing up the outlook, Smurfit said: “While there are always political and economic risks, and individual markets invariably have challenges from time to time, we are increasingly well positioned to capitalise on a positive pricing environment in 2017.”